Apple Inc. has struggled to meet Wall Street’s expectations for iPhone units sales in recent quarters, but the company has surprised investors by getting consumers to pay ever more for its phones.
The company’s strategy around its next iPhone launch will determine whether the trend continues.
Morgan Stanley analyst Katy Huberty has weighed in on reports that Apple AAPL, -0.29% is going to give more attention to lower-cost phones when it releases its new iPhone this year, and she analyzed what such a strategy could mean for the company’s average selling prices.
Huberty’s three “base case” scenarios assume that Apple unveils a 6.5” OLED model, starting at $999, a 5.8” OLED model, starting at $899, and an LCD-screen model. Apple currently charges $999 and up for its 5.8” iPhone X, the top model available today, so Huberty’s base case scenarios assume the company doesn’t raise the starting price for its new top-of-the-line phone, even though the screen will be larger, and ends up essentially lowering the price for its new 5.8” model, even though it will presumably have some more features than the current iPhone X.
With these assumptions, Huberty calculates that Apple’s iPhone average selling price for the 2019 fiscal year will fall in the range of about a 2% decline to 2% growth. The variability depends on how Apple prices the new low-end LCD model, and Huberty’s three base-case scenarios model prices of between $699 and $769 for the phone.
Were Apple to start the 6.5” model at $1,099, the 5.8” model at $999, and the LCD phone at $799, the company could see its average selling prices grow 7.2%, according to Huberty’s analysis. She rates the stock at overweight with a $214 price target.
It’s worth noting that prices for the configurations with the highest amount of storage can be significantly higher than the base price. Currently, a 64GB iPhone X costs $999, while a 256GB model costs $1,149. That helps drive up ASPs further.
Apple saw iPhone ASPs climb to $652 in the latest fiscal year, from $645 in fiscal 2016. Analysts expect the ASP to rise to $738 for the current fiscal year and stay precisely there in fiscal 2019, according to FactSet estimates.
Apple shares are up 0.2% in Thursday trading and up 28% over the past year. The Dow Jones Industrial Average DJIA, +0.49% of which Apple is a component, has gained 15% in that time.